The 3 Most Important Terms in an Employment Contract

A long term friend and former coworker called me the other day and said she was moving to another state to take a director level job with an up and coming software company in an employment at will state. The offered salary was $120,000 and up to $12,000 in moving expenses.

She said she didn't need help with her employment contract which was in draft form and awaiting her review. She knew how to read one. What she wanted from me was to step into her shoes, pretend I was her, and without reading her employment contract to tell her what I thought were the three most important things to be sure to include. Here is how the conversation went:

"Have you read the company employee handbook?"

"Yes. There's nothing in it I disagree with except the vacation days. You only start out with 10 working days a year! Isn't that insane?"

"Does your contract say anything about vacation?"

"No. Should it?"

"Yes. In most cases, the terms of your employee handbook are as good as the terms in your contract."

"I didn't realize that. So by signing my employment agreement, if it is silent on vacation, I'm stuck with what's in the employee handbook?"

"Yes."

"So what do I do?"

"How many vacation days do you want? Did you discuss it?"

"No, not yet, but I should get at least 15 working days, or even 20. I'm too old to have no work life balance anymore."

"Ok, then at the end of your contract, insert an Addendum that says 'Notwithstanding any other term in this Employment Contract, the Employee Handbook, or in any other company document whatsoever, the terms of this Addendum shall prevail.'"

"Say that again?"

"At the end of your contract, insert an Addendum that says 'Notwithstanding any other term in this Employment Contract, the Employee Handbook, or in any other company document whatsoever, the terms of this Addendum shall prevail.'"

"Ok. What does that have to do with my vacation?"

"It doesn't. This is just the paragraph at the top of your Addendum which lets you add terms below it, like your vacation days, so they take priority over all the other terms in your contract."

"Oh, I see. 'Notwithstanding any other term...'"

"Then just write '1. Employee shall be entitled to 20 working days of paid vacation each year ("Vacation Days"), excluding all company holidays, allowed sick leave, jury duty, bereavement, voting, and all other kinds of paid days off whatsoever to which any employees are or may become entitled to, company-wide, whether due to policy, law or otherwise. The intent is for Employee to not have any of her 20 working days of paid vacation each year be offset for any reason. Additionally, these Vacation Days shall be entirely vested upon execution of this Employment Agreement and if not used up by the end of this Employment Agreement's term, the value of the unused days shall be paid to the Employee, however, should the Employment Agreement be renewed, at the sole option of the Employee, these Vacation Days shall either be paid out to Employee or continue to accumulate. For no reason whatsoever shall Employee's Vacation Days be capped as they shall accumulate from year to year and they shall remain available in perpetuity when unused. All Vacation Days paid out shall be paid at a pro rata rate based on Employee's highest average salary during Employee's highest earnings quarter.'"

"Good grief! They'll never go for that!"

"I'm just giving you the best of all possible worlds. This way, when you hit them with this shocker, they might easily settle for something like: '1. Employee shall be entitled to 20 working vacation days each year, which vest upon execution of this Agreement. These 20 days shall not be offset for any reason. Vacation days shall accumulate and only be paid out upon Employees' request.'"

"Doesn't the short version say the same thing?"

"Mostly, but not entirely."

"Ok, let's move on. What is number 2?"

"Actually vacation days are number 3, and now I'm giving you the most important term, at least in my opinion."

"Ok. What is it?"

"Put in your Addendum the following: 'Employee shall not be subject to layoff or headcount reduction measures for any reason; Employee shall only be dismissed for cause.'"

"You have to be kidding me! Saying they can't lay me off is the most important thing to get in writing? This company is doing awesome! They are growing. Last year they had 500 employees and now they are almost to 800. You should have heard the CEO talking about the direction they are going on their broadcast!"

"All I can tell you is companies collapse overnight these days and what you hear isn't always the reality. Do you know how much of their revenue is from each of their top 5 customers?"

"No."

"Do you know their margins?"

"No."

"Do you know how much is in the pipeline for the next few quarters?"

"No."

"Have you reviewed the company's audited financials and the financials for the most recent closed quarter?"

"No."

"Do you know how much debt this company has and how much is left on its credit line?"

"No."

"So you really don't know if there could be a massive layoff next quarter?"

"Okay, I see your point."

"My point is that during this down economy, no one's job is safe. I don't care what you've been told. Besides, if they are so sure they are doing so great, then giving you a no layoff provision is a no brainer, right?"

"I guess I see your point. I can even say, hey if you don't like this term in my contract, are you hiding the fact you are financially unstable?"

"That's right. You are uprooting and moving. You need some security."

"Good point. A lot of managers I know have been out of work a long time. Even ones that thought they'd have their jobs forever."

"I know a lot of casualties too."

"Ok, what is your third point?"

"Put in your Addendum '2. 180 days written notice of termination shall be given to Employee or by Employee before this Employment Agreement's expiration date of XX-XX-XXXX, or it shall automatically renew.'"

"That's a lot of notice! Why so high?"

"Can't hurt to ask, plus don't you need a good 6 months to find a new job?"

"You have a point!"

"Plus, it almost always guarantees you a renewal. Employers are rarely so proactive as to be planning what to do with their employees in 6 months."